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Mobius: Emerging Stocks to Rise as Fed Spurs Hunt for Return

Wednesday, 12 Dec 2012 06:58 AM

Developing-nation stocks will probably climb next year as global central banks add money to the financial system and spur investors to seek higher returns, said Templeton Emerging Markets Group’s Mark Mobius.

Policy makers from the U.S. to Brazil and Japan have stepped up efforts to boost their economies with interest-rate cuts, bond purchases and weaker currencies, Mobius, who oversees more than $40 billion, said in a phone interview from Nairobi. Low yields on U.S. Treasurys are sending pension funds and other large investors on an “incredible hunt” for returns, including in so-called frontier markets such as Kenya, he said.

The MSCI Emerging Markets Index has climbed for six days amid speculation the U.S. Federal Reserve will announce an expansion of its bond-buying program. The combination of low debt levels, high foreign-exchange reserves and economic growth that may average about 5 percent next year makes the outlook for equities in developing nations “very positive,” Mobius said.

Editor's Note: Economist Warns: ‘Money From Heaven a Path to Hell.’ See Evidence.

“The more money you have going into the global economic system, the more opportunity there is for a rise in the stock market, and that’s what we’re going to be witnessing this coming year,” said Mobius, whose Templeton Frontier Markets Fund has outperformed 90 percent of peers in 2012, according to data compiled by Bloomberg. “With interest rates at these levels, equities become very, very attractive.”

Fed Announcement

The MSCI emerging index climbed 0.6 percent to 1,040.95 at 10:26 a.m. in London, extending this year’s gain to 14 percent. The gauge is valued at 13 times reported earnings and has a dividend yield of 2.7 percent, compared with a yield of about 1.7 percent for 10-year Treasurys, according to data compiled by Bloomberg. The MSCI Frontier Markets Index has increased 3.1 percent this year.

The Fed may announce $45 billion in monthly Treasury buying that will push its balance sheet almost to $4 trillion, according to a Bloomberg survey of economists.

Forty-eight of 49 economists predict the Federal Open Market Committee will purchase Treasurys to bolster an existing program to buy $40 billion in mortgage bonds each month. The Fed is expected to release its policy statement.

Brazil’s central bank has cut its benchmark interest rate by 3.75 percentage points this year to a record 7.25 percent and policy makers have taken steps to weaken the real. Shinzo Abe, whose Liberal Democratic Party is leading in opinion polls ahead of Japan’s Dec. 16 elections, has called for more fiscal stimulus and “unlimited” monetary easing.

The real has weakened about 10 percent against the dollar this year, while the yen has depreciated 7.2 percent.

“We have a situation where countries don’t want their currencies to be too strong, so they print money,” Mobius said. “Everybody is watching everybody else to ensure they’re not going to be left out of the export opportunities.”

Editor's Note: Economist Warns: ‘Money From Heaven a Path to Hell.’ See Evidence.

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Developing-nation stocks will probably climb next year as global central banks add money to the financial system and spur investors to seek higher returns, said Templeton Emerging Markets Group s Mark Mobius. Policy makers from the U.S. to Brazil and Japan have stepped up...
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